Charles often wondered how his colleague Seyi, who was on the same job level, and who earned the same salary, and who had similar skills and experience, could afford to move to a better area, buy a decent car, enroll his children in an excellent school, whilst he, (Charles) was still living pay check to pay check. The difference between the two of them, is that Charles has always had a penchant for the finer things of life today, whilst Seyi has been saving consistently since he started earning and has been smart about using some of his savings to generate supplementary income. He is well on his way towards achieving financial independence and securing his family’s financial future.

Active income is the income you get from your direct efforts at work. If you don’t work, you don’t get paid. Passive income, on the other hand, generally includes income that is not directly related to your daily activity, income that you can generate without having to actively work for it; in fact, it is the other way round; your money is actually working for you with no extra effort on your part other than your through the act of investing. Ideally, in your peak earning years, your goal should be to use as much of your income as possible to create sources of passive income that will generate regular income for you during retirement or should you be unable to work for a period of time.

Interest is a most basic form of passive income. This recurring income stream can help finance some of your current needs or be saved for other goals. Interest earned on your savings account balance, fixed deposits, or bonds is a risk-free source of passive income. However, do note that with current interest rates barely keeping apace with inflation, it will be difficult for you to increase your capital in this way.

One of the easiest ways to earn passive income is to buy shares in a publicly quoted company that regularly pays dividends to its shareholders. If you don’t have the time or the inclination to carefully select stocks yourself, contact a reputable stockbroker and educate yourself on the workings of the stockmarket. There is a plethora of information online, in books, magazines and the media on how to invest in stocks. As an alternative you might prefer to purchase mutual funds as a good way to build a well diversified and professionally managed portfolio even if you don’t have enough money to invest in individual stocks.

Real estate investing is one of the most common sources of passive income. You can buy residential or commercial property for investment purposes and rent it out to create passive rental income. In Nigeria where rental income is sometimes earned two to three years in advance, landlords have a huge opportunity to invest the windfall payment derived from one property to invest in another. There is also the added advantage of capital appreciation, should the value of your property increase. This can be a great investment for the long term but usually requires significant capital. Real estate can also be fraught with complex issues so it is important to seek expertise from a reliable professional.

Both stocks and real estate have the ability to grow in value over time. Indeed, capital appreciation is one of the greatest benefits of both of these passive income sources when you sell your assets. These proceeds can then be used to create other assets. In discussing these sources of passive income, one should never ignore the ensuing risk. Bear in mind that there is the very real risk of loss, as markets can be volatile and prices will fluctuate.

Apart from the investment approach to passive income, there is the entrepreneurial approach. There are many interesting business ventures that struggle and fail to attract adequate funding. If you are approached by a well-regarded entrepreneur to lend money or to invest in his or her business, and are interested in providing some support, have the proposal properly analyzed by a professional before you consider lending some of those much-needed funds or before becoming a silent equity business partner entitled to some share of profits should the business meet expectations.

Try to envision your desired lifestyle for the future. What do you want to spend your time doing? It is important to ask yourself these questions. Many of us, as we enjoy one primary source of income from our jobs and occupations become somewhat complacent. It is very rare to find people achieving their financial goals and dreams through their salaries alone; one usually needs alternative sources of income to be able to increase one’s wealth in any significant way.

We all have a choice of either spending today or saving up to be able to consume more tomorrow. It will not be easy, and of course, the state of your personal finances, family situation, and lifestyle will determine how much you can afford to save and invest. The usual pulls on your income and the temptation to be lured by peer and societal pressures to spend will continue. It is only through discipline and consistency that you can commit to saving something, no matter how small, each month. Even small amounts of savings carefully set aside today can grow into significant sums in time.